Complete Guide to Philippine Bookkeeping for Sole Proprietors

🧾 1. Understand the Structure of Your Books

Under a BIR-approved loose-leaf authority (BIR Form 1900), you must maintain the following books of accounts:

Book	Purpose
General Journal (GJ)	Chronological recording of all transactions. Starting point of bookkeeping.
General Ledger (GL)	Summarizes each account's activity and running balance.
Cash Receipts Journal (CRJ)	Details all cash, bank, and e-payment inflows.
Cash Disbursements Journal (CDJ)	Details all cash or bank payments.
Subsidiary Ledgers (optional)	Breakdown of A/R, A/P, or inventory per client/supplier.
Trial Balance	Arithmetic check that total debits = credits.
Financial Statements	Income Statement + Balance Sheet based on the Trial Balance.

🧾 2. Source Documents (The Proof)

Your primary evidence in any BIR audit. Keep originals of:

• Official Receipts (OR) — for all income transactions
• Sales Invoices (SI) — for goods or services sold
• Check Vouchers (CV) or Bills — for all business expenses
• Bank deposit slips or transfer confirmations — for cash inflows
• Contracts & Agreements — for major transactions

🕓 Retention Rule: Maintain all source documents for 10 years minimum (NIRC §235). This is non-negotiable for BIR compliance.

🧮 3. Bookkeeping Flow

Step 1 – Record in the General Journal

• First book of entry.
• Each transaction must have equal debit and credit.
• Include the date, document reference, and short narration.

Example:

Date	Particulars	Ref.	Debit	Credit
2025-01-05	Cash	OR001	50,000
	Service Income	OR001		50,000

Step 2 – Post to the General Ledger

• Copy every line from the journal to the proper ledger account.
• Each ledger page begins with a Beginning Balance and ends with a Closing Balance.
• Use a Date column for traceability.

Example (Cash Ledger):

Date	Particulars	Ref.	Debit	Credit	Balance
2025-01-01	Beginning Balance	BB2025	80,000		80,000
2025-01-05	Brokerage Commission – OR001	J1	50,000		130,000
2025-12-31	Closing Balance	CL2025			92,000

Step 3 – Prepare the Trial Balance

• List all account balances from the GL.
• Verify total debits = total credits.
• Adjust errors before preparing financial statements.

Step 4 – Make Adjusting and Closing Entries

• Adjust accruals, depreciation, prepaid items if any.
• Close all income and expense accounts to Owner's Capital.

Step 5 – Generate Financial Statements

Statement	Purpose
Income Statement	Shows income – expenses = profit. Used for tax.
Balance Sheet	Shows assets, liabilities, capital as of year-end.

For the 8% tax option, use only gross sales/receipts and non-operating income in the tax computation; expenses are not deducted for income-tax purposes but are still required in books.

📦 4. Submission Rules for Loose-Leaf Books

Requirement	Details
Permit to Use (PTU)	File BIR Form 1900 with affidavit + sample printouts before use.
Printing / Binding	At year-end, print and hard-bind all pages. Include page numbering and headers: business name, TIN, book title, period.
Submission deadline	Within 15 days after the end of the taxable year (e.g., by Jan 15 for calendar year taxpayers).
Retention	Keep bound copies for 10 years for BIR audit reference.

🧩 5. Control Checklist

• ✅ All entries supported by official documents
• ✅ Each journal page has totals and page numbering
• ✅ Ledger shows beginning + closing balances
• ✅ Trial Balance totals match
• ✅ Books bound and signed before submission deadline

📚 6. Authoritative References

• BIR RMC 3-2023: Rules on manual, loose-leaf, and computerized books
  → View PDF
• BIR Form 1900 (Oct 2024 ENCS): Application for Authority to Use Loose-Leaf Books
  → View PDF
• NIRC §§232-235: Legal basis for books, preservation, and BIR inspection.
• Accountaholics PH & CloudCFO Guides: Practical loose-leaf submission steps.

Summary Diagram

Documents → General Journal → General Ledger → Trial Balance → FS → BIR Submission

This sequence is the official and auditable bookkeeping workflow for a DTI-registered sole proprietor under the 8% income-tax regime using loose-leaf books of accounts.

Key Takeaways

• ✅ Loose-leaf books require a Permit to Use (BIR Form 1900) filed before implementation.
• ✅ All transactions must flow from source documents → journals → ledger → trial balance.
• ✅ Books must be printed, bound, and signed at year-end with proper headers and page numbering.
• ✅ Submission deadline: 15 days after the taxable year ends (e.g., Jan 15 for calendar year).
• ✅ Maintain all source documents and bound copies for 10 years for BIR audit defense.
• ✅ The 8% tax option only applies to gross sales/receipts; record all expenses for accounting accuracy.

Conclusion

Proper bookkeeping under the loose-leaf system is not optional—it is a legal requirement for BIR compliance. Following this guide ensures accurate financial records, defensible documentation in case of audit, and compliance with both the NIRC and BIR regulations. Start with the basics (source documents → journals), maintain consistency throughout the year, and plan for binding and submission before the deadline.